Amid a threefold spike in friendly fraud, one study estimates merchant and issuers lost $31 billion to chargebacks last year; other sources suggest that figure could exceed $80 billion. Loss prevention specialist Chargebacks911 shares advice on how to avoid red ink in today’s red-hot eCommerce environment.
(Tampa Bay, FL) September 26, 2018 – A new study found merchants shouldered nearly two-thirds of $31 billion in chargeback costs last year(1)—though some experts estimate annual chargebacks surpass $80 billion(2)—hindering profitability even as major retailers have recorded robust sales growth.(3) Other researchers noted that chargeback policy abuse, a form of cyber-shoplifting, was three times more prevalent in 2017,(4) and card-not-present (CNP) merchants face 34% more of this “friendly fraud” than their brick-and-mortar counterparts.(1) Chargebacks911, a leading dispute mitigation and loss prevention firm, delves into the data and advises eCommerce merchants to take immediate action to prevent chargebacks and fraud from eating into profits.
After a year of record store closings, merchants have risen to the challenge of consumers’ Amazon-driven expectations of instant gratification; today, big-box retailers such as Target and Walmart are experiencing their best sales growth in over a decade.(3) Yet the specter of chargebacks has become a growing concern, as new data shows merchants and issuers lose an additional $1.50 in fees and costs for every $1 in disputed transactions.(1) Of the $31 billion in chargebacks cited in the recent study, issuers were responsible for $11.6 billion while merchants took a $19.4 billion hit.(1) Nearly half (45%) of all consumers filed at least one dispute in 2017, and 25% filed two or more.(1) Not only did policy abuse/friendly fraud rise threefold last year, but it also “increased notably in terms of the sophistication of attack methods.”(4)
Monica Eaton-Cardone, co-founder and Chief Operating Officer (COO) of Chargebacks911, says these trends underscore the growing threat posed by chargebacks. “Merchants have a habit of focusing on criminal fraud while writing off chargebacks as a cost of doing business to keep customers happy. So, it’s little wonder that cyber-shoplifters have become more brazen in their attempts to game the system when they discover how easy it is to get away with,” she warned. “eCommerce merchants can’t afford to overlook chargebacks any longer, or rising fraud losses will continue to erode revenue and offset any sales bumps.”
While $31 billion in chargebacks(1) may seem substantial, Eaton-Cardone believes the total is much higher when cumulative figures for every card network and cross-border transactions are taken into account. Upon examining industry data for The State of Chargebacks: 2018 Report, Chargebacks911 and partner Kount estimated annual chargebacks to be in the $80 billion range.(2) Likewise, though merchants surveyed feel roughly 34% of chargebacks result from friendly fraud,(1) Eaton-Cardone’s experience suggests that figure could be as high as 86%.(5)
Beyond the long-standing struggles eCommerce retailers and travel/hospitality services have had with chargebacks, studies show that restaurants are now feeling the sting as food-and-beverage fraud jumped 117% in 2017 compared to the prior year.(4) A 2016 Federal Reserve Bank report found that restaurants experienced an average chargeback of $84 on Visa and Mastercard eCommerce disputes, which was 23.5% higher than the $68 average for card-present transactions.(6)
Eaton-Cardone notes that while today’s instant-gratification culture has contributed to an eCommerce boom for merchants that can deliver the ease and speed of Amazon,(3) it’s also fueling rising chargebacks and fraud. Delivery services such as Uber Eats, Amazon Restaurants and Grubhub allow consumers to order meals without interacting directly with the restaurant, so they may be more inclined to file a chargeback when they never see the victim face-to-face. Researchers believe that soaring food-and-beverage fraud is also likely due in part to criminals using these relatively low-value, anonymous meal orders to test if stolen credit card numbers still work.(4)
“Merchants can’t let their guard down when it comes to criminal fraud and data breaches, but they really need to expand their fraud-prevention efforts to tackle chargebacks head-on,” asserted Eaton-Cardone. “In some cases, consumers may not even realize they’re stealing from merchants; they just assume a chargeback is an easy, non-confrontational way to score a refund. Until retailers and restaurateurs start fighting back against unjust chargebacks, fraudsters will continue to take advantage of the system.”
To mitigate fraud losses, Eaton-Cardone advises eCommerce merchants to implement a chargeback management solution that combines the rapid detection capabilities of technology with human reasoning and expertise. She recommends a merchant compliance review to correct internal missteps that lead to chargebacks and notes that customer-friendly return policies and proactive outreach can circumvent many disputes. When consumers approach sellers with a transaction issue, merchants are able to resolve the problem without a chargeback in 84% of all cases; yet 76% of cardholders take their dispute directly to their card issuer.(1) That’s why Eaton-Cardone also counsels merchants to engage in tactical representment, which helps recover lost revenue and discourage future chargeback abuse.
Chargebacks911 is committed to educating and supporting eCommerce merchants with services designed to preserve profitability, shrink chargebacks and prevent fraud. To that end, Monica Eaton-Cardone and her team will be participating in a number of upcoming industry events, including PayExpo 2018 in London, ADSUM 2018 in Scottsdale and TravelConnect 2018 in National Harbor, Maryland. For details on Chargebacks911’s comprehensive risk management solutions, informative articles and other merchant resources, visit https://chargebacks911.com.
Chargebacks911, known as The Chargeback Company in Europe, safeguards over 2.4 billion online transactions every year, representing clients in 87 different countries. It is the first global company fully dedicated to mitigating chargeback risk and eliminating chargeback fraud, and the company has won the Customer Choice Award for Best Chargeback Management Solution at the CardNotPresent Awards for two years in succession. As industry-leading innovators, Chargebacks911 is credited with developing the most effective strategies for helping businesses maximize revenue and reduce loss in a variety of industries and sectors within the payments space.
Chargebacks911 provides comprehensive and highly scalable solutions for chargeback compliance, handling services and fraud strategy management. With unparalleled category experience and Intelligence Source Detection (ISD™) technology, Chargebacks911 identifies the true source of chargebacks, optimizes revenue recovery opportunities, mediates disputes, safeguards reputations, monitors transactions 24/7 and helps proactively prevent future fraud. To learn more about Chargebacks911, visit www.chargebacks911.com.
- Javelin Strategy & Research and Verifi. The Chargeback Triangle; May 2018.
- “What Are Your Top 5 Chargeback Challenges?”; Blog Against Fraud; February 17, 2018.
- Corkery, Michael. “Hard Lessons (Thanks, Amazon) Breathe New Life Into Retail Stores”; The New York Times; September 3, 2018
- Merchant Risk Council. “Forter Releases Fraud Attack Index: Alarming New Normal for eCommerce Fraud”; posted in member news on November 22, 2017.
- “New eBook from Kount and Chargebacks911: There’s No Such Thing as Friendly Fraud”; November 2, 2017.
- Hayashi, Fumiko; et al. Chargebacks: Another Payment Card Acceptance Cost for Merchants; Federal Reserve Bank of Kansas City report; January 2016.